Euro zone yields edge lower; Italian spreads continue to tighten

LONDON, Aug 5 (Reuters) - Euro zone bond yields inched down on Tuesday and the gap between Italian yields and those of Germany and France held at around its narrowest in years, with business activity the only data due in a light day for scheduled events.

Germany's 10-year yield, the benchmark for the euro zone, dropped 2 basis points (bps) to 2.61%, its lowest in nearly two weeks after Monday's near 5-basis-point fall. DE10YT=RR

Italy's 10-year yield was down 3 bps at 3.44%, and after its 7-basis-point drop on Monday, the difference between it and the German yield was at 83 bps - around the tightest since 2010. IT10YT=RR, DE10IT10=RR

Italy's relatively strong economic performance and general optimism across markets and asset classes have been driving that spread tighter in recent years.

Italy's spread to France, where political uncertainty and fiscal worries remain a concern for investors, is about 17 bps, its closest since 2007. IT10FR10=RR

Business activity data from Europe and the United States is due to be released later in the day, with the U.S. reading more likely to have a market impact.

After soft U.S. jobs numbers from Friday, investors are looking for more information about the health of the U.S. economy as they try to assess whether and how much the Federal Reserve will cut interest rates this year.